The USDE de-anchoring incident from the perspective of lending and leveraged trading

First of all, I don't understand contracts, I only know about lending. This short article was inspired by a friend's excellent post on WeChat Moments about a cause-and-effect chain. I welcome your corrections if there are any errors or omissions.

USDE launched on Binance in September and launched a 12% APR promotion from September 22nd to October 22nd. There are three ways to participate:

1. VIP Loan, with a revolving loan of 3.5x;

2. Easy Deposit and Loan, with a revolving loan of 3.5x;

3. Leveraged Trading, where large traders can achieve 5x leverage. Let's first discuss the decoupling incident and the final impact on the three products: 1. VIP Loan users: no impact. Funding was unaffected. However, on the morning of the 11th, because Binance took over the collateralized assets, these assets were valued at zero, but liabilities were displayed. Therefore, the app displayed "Assets = Liabilities - Spot", which was mostly negative. According to feedback from group members, some people panicked and quickly closed various positions, resulting in some losses. 2. Deposit and Loan Easy: minor impact. Before Binance compensates, principal losses are within 10%, varying depending on the revolving loan multiplier. Losses = USDE liquidation negative premium + forced liquidation fees. Note: The liquidation on Deposit and Loan Easy did not exacerbate the decline of USDT. Instead, it occurred after USDT rebounded, between 0.92 and 0.97 (which can be directly extrapolated). Cross-validation evidence: If you hold ETH, BTC, etc. on Deposit and Loan Easy, you can infer the liquidation price from the liquidation list and the bonus. Mine happens to be there: the ETH liquidation price is 3933, and the liquidation time is between 5:45 and 6:00, avoiding the 5:30-5:45 dry spell, and it's not a market crash. 3. Margin trading, the hardest hit area. Margin trading is liquidated in real time, so the liquidation price ranged from 0.99 to 0.66, which was also the main battlefield of this depegging. Before Binance provided compensation, the losses were huge. A 2.5x cycle or more would result in a complete loss of principal. For users with a 5x cycle, the forced liquidation fee alone was 8% of the principal. The Fuse and Trigger (This Part is Pure Speculation) Trump's bearish remarks about tariffs on China, among other things, triggered billions of dollars in market volatility, leading to a sharp drop in BTC and ETH... Pay attention! Once the ignition is ignited, it will trigger a chain reaction to leveraged trading products. First, let me state a premise: I suspect some whale users are placing significant amounts of BTC and ETH in leveraged trading products, borrowing USDT, and then leveraging USDT through a USDT-USDT cycle, or perhaps using a unified account to share margin. The resulting margin call from the contract triggered a massive liquidation of USDT-USDT in leveraged trading. Regardless, the fact is that the plummeting prices of BTC and ETH triggered the liquidation of his (perhaps multiple or even a single) positions. The liquidation engine continuously dumped his USDT to repay his USDT debt, initiating a downward spiral that hit the 0.91 mark, then the 0.82-0.8 mark. The 0.82 mark was the liquidation price for the five-fold cycle, and a large number of whales had accumulated there. The barrier instantly burst, the dam burst, and the torrent plummeted to 0.66.

Responsibility and Determination (Part of this is speculation)

USDE has a real-time mint-redeem mechanism, and the on-chain USDE price is relatively normal. The redeem cost for arbitrage bots is 0.1%, and any price difference greater than 0.1% will automatically trigger arbitrage operations. The selling pressure on Bybit to 0.92 was due to the fact that after Binance's ETH withdrawals were blocked, clever arbitrageurs switched USDE to Bybit through the BSC chain to dump the price. However, Bybit's internal mint-redeem mechanism triggered these bots' arbitrage, thus suppressing the price from 0.92.

[Afterwards, it was discovered that a team had already written this arbitrage path and bot. At the time, they had planned an alternative USDE arbitrage plan in the event of Binance's ETH withdrawals being blocked. They could have used the BSC chain to conduct arbitrage through Bybit's internal mint-redeem mechanism, thereby suppressing the decline of Binance's USDE. Unfortunately, the team was asleep at the time. It was all fate.]

Why were Binance's ETH withdrawals blocked? If you remember, Binance once paid 500 ETH in transaction fees to clean up its wallet, earning ridicule online. I suspect that after that incident, Binance implemented a limit on its hot wallet withdrawal mechanism, halting withdrawals when the ETH chain's gas level exceeded a certain threshold. This makes sense from the exchange's perspective. Without this limit, each transaction would cost hundreds of ETH, and honestly, hundreds of millions of dollars in gas could be lost in a single day. But this time... this mechanism inadvertently blocked the lifeline of USDC. After 5:36, USDC on Binance could no longer be withdrawn to the chain for minting and redeeming. Even if these arbitrage bots switched to Bybit for a short period of time, they were locked in by Bybit's withdrawal limit. So, everyone could only watch helplessly as USDC plummeted to 0.66. For this reason, Binance's reward announcement states that those affected by the decoupling between 05:36 and 06:16 (GMT+8) on October 11, 2025, will receive compensation for the difference and liquidation fees. This means that Binance believes withdrawals before 05:36 and after 06:16 are normal, and everything is market-driven. Binance has not yet announced the USDE oracle parameters and the minimum price. I recommend a two-track approach: a starting point of 0.85, meaning the high barrier of a five-fold revolving loan cannot be easily breached (note, I never recommend using leveraged trading for revolving loans, as evidenced by the image below); and an assessment based on the specific circumstances of Ethena's assets, positions, and liabilities, allowing for frequent updates. Binance has launched an on-site mint-redeem mechanism, allowing arbitrage bots to effectively suppress price declines. Here's an extension of the question: Why can this be suppressed after being launched on-site? Wouldn't the Ethereum chain also experience congestion when gas levels start high? Honestly, this is a core issue for future improvements. Anyone who can answer this question here, without needing to read my subsequent answers, has already mastered the lending field. I initially thought the same, even suggesting that Binance directly request Ethena to open a separate channel, storing Ethena's funds in Binance's Ceffu account. This would create a mechanism to switch to the Ceffu-Ethena account in an emergency to transfer funds for minting and redeeming. Mint-redeem is now conducted on-chain. If the reserve pool is empty, funds are automatically transferred from Ceffu to the reserve pool. This was previously a problem, but Binance's volume is now truly overwhelming. When the chain is congested, arbitrageurs can't keep up, and Binance's hot wallet can't afford to allocate hundreds of U of gas per transaction. However, after further in-depth discussions with Binance and Ethena, we arrived at a solution: 10 million can be redeemed every 12 seconds (one Ethereum block). We can adjust this limit on our end through multi-sig, so we can process up to 200 million. Currently, minting and redeeming redeems are only possible through smart contracts. Gas fees do not affect the speed. We estimate and pay enough gas to ensure transactions are completed within a single block, as we always prefer smooth minting and redemption confirmation. This cost will be passed on to users. This is feasible: when USDE's redeem product is on Binance, the redeem fee + gas fee is automatically calculated. Users can pay if they wish, thus circumventing the high gas limit of Binance's hot wallet! Final Words 1. As a heavy user of both on- and off-chain lending, October 11th was the most unusual day I've ever experienced. It was also the most stressful day I've ever experienced in community service. The amount of money involved was quite significant. Even though we urged everyone to use VIP lending, some members still resorted to leveraged trading (heavily affected) and Deposit Easy Loans (less affected) due to position management and other factors. After coordinating and communicating with all parties yesterday, we were fortunate to have BN's overall support. Beyond professionalism, we should remain humble and have more empathy and compassion. Also, the perspectives of borrowers and contract users are different. After a difficult day, as a borrower, I received almost full compensation on the 12th, so I'm grateful. Judging from the comments in the previous posts, I may have created a negative impression among contract users. This was not my intention. I apologize for this and hope your rights are protected soon. 3. There's no such thing as sudden enlightenment. It's all about experience, about learning to leverage it, and next time... it's all about wealth. And for me, that's the kind of experience that made me a doctor, so I practice medicine to save the world...

4. Life requires a certain level of sensitivity, and arbitrage is probably no different. After intensely optimizing my computer every day, I had a moment of sudden enlightenment on October 11th. Perhaps in the future, I need to discover the beauty of life more, climb mountains more, and not work on web3.